To hedge her risk she’ll use futures contracts.

However, there are no futures contracts for grapefruit juice.

So she will use orange juice futures instead : each contract is for 15k pounds of orange juice & current futures price=118.56 cents per pound.

Standard Deviation of the prices of orange juice & grapefruit juice is 20% &...

Interview Question: Goldman Sachs: Imperfect Hedge]]>

I'm currently working on my research project in college. I am planning to back-test option trading strategies like bull spread, bear spread, collar strategy on historical data of options. But I am unable to come up with correct approach to work on it.

Can you guys suggest me some free tools and websites where I can get historical data and back-test strategies.

Any other inputs which you want to suggest to work on such project.

Thanks.]]>

I decided to do a project(Quasi Monte Carlo Simulation for my Advanced Derivatives Class and the professor wanted me to determine which financial model I will use and what type of risk problems I will study on my project.I decided to go with stochastic volatility model and the risk part will be the stock price fluctuations.Therefore I will add Greeks as well.That is the infrastructure of my project.What do you think?Do I follow a legal path?

Thanks in advance]]>

For testing I want to price options on a stock which follows GBM. For illustration, I have considered 2 time steps and 3 paths.

Time1: 12, 14, 13

Time2: 17, 14, 10

So, average price for valuation period is: average(12, 14, 13, 17, 14, 10) = 13.33

Avg for Time1 is: average(12, 14, 13) = 13

Avg for Time2 is: average(17, 14, 10) = 13.67

Assuming strike for call options which needs to...

Option intrinsic value using Monte Carlo]]>

(a) p = q = 1 (b) q > p = 1 (c) p > q = 1 (d) p > 1 and q > 1]]>

My work is to predict the behaviour of exchange rate of morocco after the announce of central bank that the exchange rate will be floating next years ?

Is there any stochastic model that can help to do this ?

thanks guys]]>

Problem with R code, with option pricing]]>

Build a 15-period binomial model whose parameters should be calibrated to a Black-Scholes geometric Brownian motion model with: (time to maturity)T=.25 years, (initial stock price)S0=100, (interest rate) r=2%, (volatility) σ=30%, and a dividend yield of c=1%.

I have the model...

Binomial Pricing Model]]>

also, if there is a way then how do we calibrate the long term mean and the reversion speed

Earlier i tried calibrating a mean reverting series to the OU process and solved for params to compute LTM and half life stuff ..

but the idea here is to have...

Time series harmonic check]]>

In the discrete model, without transaction cost :

The self financing hypotheses would mean having...

Self-financing trading strategy (continuous + transaction cost)]]>

The return distributions of these assets are non-normal. In particular, for one...

Optimize portfolio of non-normal binary return assets]]>

December 2016 = 10.1901%

I used a risk free return of 3%/year or 0.25%/month. Based on these numbers, are my Share Ratio calculations correct?]]>

Please, could someone suggest a way to price it in function of the actual listed price (of real stocks) and an expected listing date fo those shares.]]>

for example, iTraxx XO S22, if I know the upfront of tranche 0-10%, how can I price tranchelets 0-5% and 5-10%?

Thanks in advance.]]>

"The cost of a futures transaction is the cost of crossing the futures market spread (bid offer of futures=BOf, which is smaller than the bid offer of the cash market for major indexes), plus the roll cost=R multiplied by the number of times you have to roll the...

Futures and ETF trading cost]]>

I'm a newbie and I'm currently trying implement a basic algorithmic trading strategy using historical returns data for a range of equities and indexes. However, when I was reading Ernie Chan's 'Quantitative Trading' he states that

"

I'm not exactly sure why this is. Is it because the returns do not necessarily randomly distribute around a mean of zero? If I only have historical

Implementing a basic mean reversion & intraday returns]]>

]]>

Suppose that, for an effective monthly interest rate r, which is positive, a loan requires equal repayments of dollar A each month for n months, with the first repayment due in exactly one month. Here, n > 1 is an integer. Let us call

it Option 1. For this option, a timeline shows that time 0 is the time when the borrower obtains the loan and that time 1, time 2,...

Analytically finding bond preference through weighted of arrival time for the n coupons. Help!]]>

I am a MSc in Finance student and currently writing my master thesis about the Hull-White two factor model. Unfortunately, I have some problems with the implementation in Excel. I am not too experienced with Quantitative Finance and therefore implement it in Excel by hand (no VBA programming). I have set up the three-dimensional trinomial tree Right now I am not sure how to continue with pricing caps, floors and swaps. Can someone please give me some advice about how to...

Hull-White Two Factor Model Excel-Implementation]]>

Here, they replace the strike rate k and swap rate r with k-c and r -c, effectively shifting the model's lower bound from 0 to -c. This new lower...

Swaption Price with Negative Swap Rate]]>